The Art World's Gordon Gekko

A former corporate raider is shaking up the market with brash tactics and big plans

ENLARGE

Asher Edelman with Edouard Manet's 'Berthe Morisot on a Divan' in his office in New York. Mr. Edelman is entering the fast-growing field of art finance.
Ethan Hill for The Wall Street Journal

By

Kelly Crow

Updated Feb. 5, 2010 12:01 a.m. ET

Just before the country's most prestigious art fair, Art Basel Miami Beach, opened in December, an energetic 70-year-old man named Asher Edelman marched through the local convention center to the booth of a Zurich gallery. He was accompanied by a dozen U.S. marshals. As onlookers whispered, the marshals seized four paintings by Yves Klein, Fernand Léger, Joan Miró and a racetrack scene by Edgar Degas worth around $15 million.

Mr. Edelman goes to great lengths to protect his art interests. He had gotten a federal court order to confiscate the Zurich gallery's inventory as potential compensation for a $750,000 Robert Ryman painting that the gallery, called Gmurzynska, had borrowed from him and, he says, accidentally damaged months earlier.

Within 48 hours, Mr. Edelman got his money and the gallery got back its art. Peter R. Stern, a lawyer for Gmurzynska, says that the gallery's insurer had been in the process of disputing the claim for the damage and the gallery didn't know that a court order had been issued for the work in the meantime. "Asher uses unusual tactics, but he gets it done," Barrett White, director of New York gallery Haunch of Venison, says of the incident.

Art to Invest In

See Asher Edelman's top 10 artists for investment.

Jackson Pollock is a safe bet, according to Mr. Edelman

Mr. Edelman, the former corporate raider who helped inspire the character of Gordon Gekko in the 1987 film "Wall Street," has taken up a new position: art financier. After navigating the art world for decades as a collector, museum director and gallery owner, Mr. Edelman recently set up his own firm, Art Assured Ltd., to arrange art investments.

The field of art backing is a financial Wild West these days. When the recession upended the art market a year ago, a number of traditional institutions like banks and auction houses pulled back from loans and other financing deals based on the expected selling prices of fine art. An aggressive set of boutique lenders and financiers have stepped in to fill the gap. The most prominent art lenders operate as blue-chip pawnshops, doling out quick cash to collectors, dealers and artists in exchange for the right to sell the borrowers' artworks if their loans aren't repaid.

These lenders provide some much-needed liquidity in a market where art values have plunged and credit has stalled in the past year. But this arena can be bare-knuckled, with interest rates on one-year loans sometimes topping 20% and defaulted payments sometimes leading to public court battles—as was the case last year when New York-based Art Capital Group sued photographer Annie Leibovitz for defaulting on her $24 million loan. The two sides later reached an agreement to extend the loan.

ENLARGE

Asher Edelman in his home with 'Ride the Ride,' 2000, by James Nares.
Ethan Hill for The Wall Street Journal

Mr. Edelman is a new player in the field of art finance, but his plans are ambitious and his brash approach is drawing attention in the tight-knit art world. Going beyond art lending, he says he intends to stake money on artworks bound for auction, a niche only a few financiers have even explored.

Before the recession, Sotheby's and Christie's routinely secured commissions to auction works using a financial bet called a guarantee: The house would promise to pay a seller an agreed-upon price for an art work unless bidders offered more. In exchange, the house got a sizable chunk—up to 40%—of any added profits if the winning bidder paid more than the guaranteed price.

By the time art prices reached their peak in 2007, some auctioneers had guarantees on up to half the works in their priciest sales of modern and contemporary art. When the crisis hit just over a year ago, Christie's and Sotheby's lost a combined $63 million from guaranteed art that went unsold. Today, the auction-house guarantee has all but disappeared, the auction houses say, though a handful of dealers will occasionally stake a single painting at auction.

Mr. Edelman plans to step into that void. When a seller consigns a work to auction, Mr. Edelman's firm, Art Assure, will pledge to buy the piece if it doesn't sell for an agreed-upon minimum price. In exchange, the seller will pay the firm a fee of about 5% to 10% of the work's guaranteed price.

Unlike the auction houses, Mr. Edelman says he is also willing to stake a vast array of lower-priced objects—a $55,000 Modernist work on paper, say. Auction houses have traditionally focused on guaranteeing their sales' big-ticket lots, which are most likely to be bid up. Mr. Edelman says that smaller-ticket items represent an untapped market—opening up many more potential clients to him—and he expects to profit from the greater volume of works.

Some in the art world say the plan has the potential to lubricate the entire market by convincing more collectors to funnel art into auctions without fear that their pieces will go unsold and lose value. "Businesses like Asher's could be tapping into a new leverage business based on a potential collateral pool worth tens of billions," says Marc Porter, Christie's chairman.

The plan is also creating some controversy in the art world. Auction houses disclose in their catalogs when they've provided a guarantee for a particular work, because they have a stake in its sale—in a sense, they are partial owners. One of the cardinal rules of the auction process is that sellers aren't allowed to bid on their own work, because they could bid up the sale price.

But there is no disclosure process for a work that has been privately guaranteed, and Mr. Edelman says he wouldn't rule out bidding on a work he had guaranteed if a client other than the seller asked him to buy it. Collectors could wind up bidding against him, not realizing that he stands to profit from the piece selling well. Mr. Edelman says that he wouldn't bid up a work simply to inflate the sale price.

Rival lenders say Mr. Edelman should disclose which works he may be staking and also bidding on. Disclosure would help to "keep the playing field even," says Andrew Rose, president of Art Finance Partners, so that collectors know when a rival bidder is also a seller with a vested interest.

Mr. Edelman says his idea is legal, doesn't require any public disclosure and could benefit the entire market by convincing more collectors to trade works.

Marc-André Renold, the director of the Art-Law Centre at the University of Geneva, says that offering to guarantee works across a range of lower prices and qualities is "a risky venture." To succeed, Mr. Edelman will need a steady supply of cash to cover his bets. And if he has to step in and buy art that he's guaranteed, he'll have to find a way to offload those same pieces in the private marketplace—offering goods that have already been widely shopped.

Mr. Edelman says he can't discuss the particulars of his financing while he's still securing investors, but people familiar with the matter say his new firm has raised $12 million from American and Swiss investors and hopes to double its backing by year's end. Moreover, Mr. Edelman says he hopes to offset some of his risk by asking a bank to cover part of his stake. Mr. Edelman plans to roll out the firm's first guarantees by May.

"I used to do options conversions tables as a kid," he says. "So anyone who competes with me on this has to know I'll take it to the razor's edge."

Mr. Edelman has set up shop in the Upper East Side brownstone he shares with his wife Michelle and the youngest of his four children. The setting is cozier than the black-lacquered corner office in Manhattan where he spent the 1980s buying and breaking up companies ranging from Canal-Randolph to technology companies like Mohawk Data Sciences, Telex and Datapoint. Art, then as now, pops up everywhere. He has hung a red and orange abstract by Peter Halley in his double-height dining room and positioned a Greek marble gravestone fragment in the living room beneath a silvery cardboard wall relief by Frank Stella. A few pieces are playful deceptions, including a gray portrait of a musketeer and a Cubist abstract hanging near the kitchen. The paintings look like Picassos but are actually copies by a conceptual artist, Mike Bidlo.

He also runs a gallery out of his home, Edelman Arts, where he shows artists like Jackson Pollock. Gmurzynska isn't the first business partner he has dueled with over matters of art and money. When a gallery he ran with dealer Heidi Neuhoff went bankrupt a year ago and the court needed to divide their assets, Mr. Edelman, through his lawyer, told U.S. bankruptcy court judge James Peck that he suspected Ms. Neuhoff of hiding gallery assets that should be used to pay off creditors, according to court transcripts. Ms. Neuhoff denied any wrongdoing. When Mr. Edelman's lawyer pressed the matter in court again last spring, court transcripts state that Judge Peck said Mr. Edelman's claim appeared to be "motivated by pure vindictiveness." Mr. Edelman says he did not act out of spite. Ms. Neuhoff has since paid off her portion of the debts in the bankruptcy case, according to court documents; Mr. Edelman's bankruptcy case is still proceeding.

Born in 1939 in New York, Mr. Edelman's childhood was split between the wealthy suburbs of Long Island and the Las Vegas Strip where his father owned real estate. His introduction to art came through monographs of Impressionist and Old Master artists that he bought at age 12 and still keeps in his library. After college, Mr. Edelman worked at Carter Berlind Potoma & Weill, an investment bank. In 1969, he struck out on his own and began to scour for sagging companies, proposing ways to boost their value by selling off their less profitable parts. By the 1980s, he was considered a pioneer of leveraged buyouts, acquiring companies largely through borrowed money.

He also began cultivating his passion for art. Art dealer Mary Boone says Mr. Edelman's chauffeur-driven Jeep was regularly spotted outside SoHo galleries in the mid-1980s. The Sonnabend gallery's Antonio Homem can still recall Mr. Edelman's address at the time—120 East End Avenue—largely because he and other dealers helped fill its rooms with pieces by Joan Miró, John Chamberlain and Jean-Michel Basquiat.

When Stanley Weiser, the screenwriter of Oliver Stone's "Wall Street," caught a glimpse of Mr. Edelman's living quarters in a magazine in the 1980s, he retooled his script so that the 1987 film's corporate raider collected art as well. "The sophisticated part of Gekko, his home and the auctions and that veneer of culture—I modeled all that on Edelman," Mr. Weiser said. Director Oliver Stone and actor Michael Douglas also shadowed Mr. Edelman at work when preparing for the film.

Mr. Edelman's life took a turn the same year the movie was released, when he, together with the Montreal-based Dominion Textile Inc., made a bid to take over the textile group Burlington Industries Inc. In an unprecedented ruling, a federal judge in Greensboro, N.C. halted the takeover, ruling that a former Burlington executive had probably passed confidential financial data to the bidders. Mr. Edelman denied that he had done anything wrong and was never charged with insider trading, but the takeover was blocked.

In another case, the Securities and Exchange Commission complained that he hadn't divulged his growing stake in another company, Datapoint, quickly enough. He settled the matter without admitting or denying wrongdoing by paying the commission around $484,000. In 1988, he resettled in Switzerland, because he had "virtually given up on Wall Street," he says.

It was there, in the French-speaking village of Lausanne on the shores of Lake Léman, that Mr. Edelman realized he could realign his career in the art world. He rented an empty dye factory and hired a local curator, Chantal Prod'Hom, and for the next five years his Museum of Contemporary Art produced shows featuring work by Robert Mapplethorpe, Damien Hirst and Matthew Barney. Mr. Edelman says he helped fund the museum by auctioning off a third of his art collection, including a $3 million Jasper Johns (he declines to give the overall value of his current art holdings or his net worth). Ms. Prod'Hom says tentative plans to shift management of the museum to the city fell through when Mr. Edelman returned to the U.S. in 1995; the museum closed and the space was later converted to offices.

Since his return in 2001, Mr. Edelman has operated two galleries; Edelman Arts, opened in 2008, is the latest.

Mr. Edelman is now joining a rare segment of the art industry—art financing—that hasn't slowed down in the recession. Art Capital Group expects to dole out as much as $300 million worth of new art-backed loans this year, up from $120 million last year and $60 million five years ago. Citi Private Bank said its top clients also increased their borrowing against their collections to as much as $100 million last year, up from a typical maximum loan of $20 million a decade earlier.

Mr. Edelman, seeing an opportunity, says he began approaching investors last fall about starting his own art-financing firm. Unlike the other firms already in the art-financing arena, he plans to make private guarantees on auctioned works a centerpiece of his business.

Mr. Edelman's confidence in the art market is unflappable. Some of his ideas filter into the memos he regularly sends out to 3,000 finance and art mavens. In a January memo last year, he wrote, "Art, like gold, has an intrinsic value.…I cannot identify a time in modern history that [art] has not served as a store of value when no others have been available or sustainable."

This copy is for your personal, non-commercial use only. Distribution and use of this material are governed by our Subscriber Agreement and by copyright law. For non-personal use or to order multiple copies, please contact Dow Jones Reprints at 1-800-843-0008 or visit www.djreprints.com.